For most investors, especially if you are younger, the Tax-Free Savings Account (TFSA) is best used for one thing: compounding. Invest in ow-cost index funds. Reinvest the dividends. Let time do the heavy lifting. That is still the most reliable path.
But not everyone wants to wait 20 or 30 years. If your goal is to generate passive income today, it is possible to structure a TFSA to do that. Just understand the trade-off. You are giving up some long-term growth in exchange for immediate cash flow.
If you are okay with that, here is one simple way to do it using a long-standing TSX-listed monthly income fund.
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Understanding EIT.UN
The Canoe EIT Income Fund (TSX: EIT.UN) is a closed-end fund, not an exchange-traded fund. This is important to understand.
That means EIT.UN does not create or redeem units daily. Instead, a fixed number of units trade on the market, which can lead to the price trading at a premium or discount to its net asset value.
The portfolio is actively managed and holds a mix of Canadian and U.S. equities, roughly split 50/50. The focus is on large, established companies with durable cash flows.
Right now, the fund holds around 50 to 60 stocks with a tilt toward high-quality, blue-chip names. It can also use leverage, borrowing up to about 20% of its net asset value. That can boost income, but it also increases risk during market downturns.
The main draw is the distribution. The fund pays a steady $0.10 per unit every month, which makes income planning very straightforward. In a TFSA, you don’t have to worry about the tax complexities created by EIT.UN’s use of return of capital either.
One thing that often gets overlooked is that this has not just been an income story. Over the past 10 years, the fund has delivered a roughly 14.5% annualized total return, which is strong for something many investors treat as a yield vehicle.
That said, you are paying for that active management. A 1.1% management fee may not sound like much, but it compounds year after year and adds up over time. On top of that, the use of leverage introduces additional borrowing costs, which further eats into returns.
Turning $25,000 into monthly income
Take your $25,000 TFSA balance and divide it by EIT.UN’s current share price – using a recent price of $16.63 as of April 7: $25,000 ÷ $16.63 ≈ 1,503 shares, give or take.
Now take those shares and multiply that figure by EIT.UN’s monthly distribution: 1,503 × $0.10 = $150.30 per month
So with $25,000 invested, you are looking at roughly $150 per month in tax-free income. If your goal is higher, say $500 per month, you simply scale up the same process by increasing the number of units.
